One interval sets the charge
Your meter averages demand over 15-minute intervals. The highest single interval in the billing cycle becomes your billed demand. Nothing else in the month lowers it.
Commercial Demand Charge Calculator
On a business electric bill, one 15-minute window can cost more than an entire weekend of usage. This calculator shows what your peak demand is actually costing you, and what it would save you to shave it.
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Overview
What a Demand Charge Actually Is
Residential customers pay for energy: kilowatt-hours, the total volume of electricity consumed. Commercial customers past a certain size pay for two things, volume and speed.
Demand, measured in kilowatts (kW), is the rate at which your facility draws power. Your meter records it as a rolling 15-minute average, and your delivery utility bills you on the single highest reading of the month. Turn on the rooftop units, the compressor, the oven bank and the lighting circuits within the same quarter hour and you set a peak that follows you onto the bill, no matter how quiet the other 2,900 intervals were.
The logic is infrastructure, not consumption. The poles, wires and transformers serving your building have to be sized for the worst moment you will ever ask of them. Demand charges recover the cost of that capacity. That is also why they are unavoidable through shopping alone: the demand charge is set by your Transmission & Distribution Utility under a PUCT-approved tariff and passes through at cost, identical no matter which retail provider bills you. Only the supply half is competitive, which is where commercial electricity rates in Texas actually differ between providers.
What you can change is the peak itself. That is what the calculator below is for. If you already know your demand charge and want to model reducing it, the peak shaving calculator handles that side.
The short version
Key Takeaways
How demand billing works in Texas, at a glance.
The threshold most businesses cross
Above roughly 10 kW of recorded demand (5 kW in TNMP territory), you move onto a demand-billed rate schedule. The per-kWh delivery rate drops sharply and the kW charge takes over.
Per kW, every month
Texas TDU distribution demand charges run about $10.10 to $14.87 per billing kW depending on territory. A 60 kW peak is $600 to $890 a month before a single kilowatt-hour is priced.
The ratchet keeps the peak alive
Most tariffs bill the greater of this month's demand or 80% of your highest demand in the prior 11 months. One August spike can raise your floor through the following July.
Run the numbers
Calculate Your Demand Charge
Pull the four numbers off a recent bill: usage in kWh, peak demand in kW, your energy rate, and your utility. Everything else is pre-filled with current tariff rates.
Estimates use PUCT-approved TDU delivery tariffs and exclude sales tax, gross receipts reimbursement, and provider-specific fees such as base charges or minimum-usage credits. Delivery rates are revised each March 1 and September 1.
How the number is built
Anatomy of the Charge
Four rules turn a moment of usage into a line item. In order of how they apply.
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1
The meter averages, then remembers
Interval meters record consumption every 15 minutes and convert it to an average kW. A 20 kW load running the full interval and a 40 kW load running half of it both register 20 kW. The highest of roughly 2,900 monthly intervals is your recorded demand, and the utility keeps it.
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2
The ratchet sets a floor
Billing demand is usually the greater of this month's recorded demand or 80% of the highest demand in the preceding 11 months. In February your building might genuinely need 30 kW, but if last August hit 95 kW you are billed on 76. The infrastructure stayed sized for August.
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3
4CP prices your summer afternoons separately
Transmission cost for larger accounts is allocated by 4CP: your average demand during the four 15-minute intervals when the entire ERCOT grid peaked, one in each of June, July, August and September. Those four windows, usually late weekday afternoons, set a transmission charge that applies for the following calendar year. Facilities that can curtail on forecasted 4CP days save on a scale nothing else on the bill matches.
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4
Load factor decides whether it hurts
Load factor is your average demand divided by your peak demand: kWh divided by (peak kW times hours). A data closet running flat at 90% load factor spreads its demand charge across enormous usage and barely notices. A welding shop at 15% pays for capacity it uses in bursts. Same $/kW, very different effective rate.
What actually moves the number
Six Ways to Lower Billing Demand
Ranked by how much they typically return for what they cost.
Stagger your startup
The most common avoidable peak is everything switching on at 7:00 a.m. Sequencing rooftop units, compressors, ovens and lighting over 45 minutes costs nothing and frequently cuts the monthly peak by 10% to 20%.
Set a demand alarm
Most interval data is available through Smart Meter Texas. A threshold alert during the interval, rather than a surprise on the bill, is what makes every other tactic on this list actionable.
Move batch loads off-peak
Kilns, chargers, pumps, laundry, air compressors filling receivers. Anything that can run at 9:00 p.m. instead of 2:00 p.m. removes itself from the peak interval entirely without reducing total usage.
Correct power factor
Motor-heavy facilities with lagging power factor get billed on kVA or face a penalty adjustment. Capacitor banks typically pay back inside two years when the penalty is already showing on the bill.
Shave with storage or curtailment
Battery systems discharge into the peak interval and recharge overnight, clipping the top of the curve. In 4CP-exposed accounts, curtailment on forecasted grid-peak days can be worth more than the demand charge itself.
Shop the half you control
Demand charges pass through at cost, but supply is competitive. A load-factor-aware quote from a provider that has seen your interval data usually beats a rate quoted off usage alone. Our commercial electricity shopping guide covers what to ask for.
Reading the bill
Terms on Your Bill
The vocabulary that shows up in the delivery section of a commercial invoice.
Kilowatt
A rate of power, how hard you are pulling at a given moment. Demand charges are priced in dollars per kW per month.
Kilowatt-hour
A quantity of energy, one kW sustained for one hour. Energy charges are priced in cents per kWh.
Non-Coincident Peak
Your own highest 15-minute demand, whenever it happened. Distribution demand charges are billed on NCP.
Four Coincident Peaks
Your demand during the four monthly intervals when all of ERCOT peaked, June through September. Sets transmission cost for the next year.
Transmission Cost Recovery Factor
The rider your TDU uses to recover transmission investment between rate cases. A large driver of recent delivery increases.
Power Factor
The ratio of working power to total power drawn. Below roughly 0.95, motor-heavy sites are billed on kVA or assessed an adjustment.
